Find the benefit-cost ratio and profitability index for group’s company startup at an interest rate of 10%
Initial Investment for Company Startup:
$2,000,000
Anticipated Annual Costs:
Annual Operating and Maintenance Costs $20,000
Annual Material Costs
$50,000
Annual Personnel Costs
$80,000
Anticipated Revenue:
Year 1: $590,000
Year 2: $570,000
Year 3: $520,000
Year 4: $150,000
Year 5: $580,000
Year 6: $930,000
Year 7: $650,000
Costs
Initial Cost =$2,000,000
Annual Costs:
O&M Costs =$20000
Material Costs =$50000
Personnel Costs =$80000
Total Annual Costs=(20,000+50,000+80,000=150,000)
Benefits
Annual Revenues:
Year 1: $590,000
Year 2: $570,000
Year 3: $520,000
Year 4: $150,000
Year 5: $580,000
Year 6: $930,000
Year 7: $650,000
MARR=10%
Benefit-Cost Ratio=PW of Benefits/(PW of Costs+ Initial Cost)
PW of Benefits=PW of Revenue
PW of
Revenue=590000/(1.1)+570000/(1.1^2)+520000/(1.1)^3+150000/(1.1)^4+580000/(1.1^5)+930000/(1.1^6)+650000/(1.1^7)
=2,719,221.63
PW of Annual Costs=150000(P/A,10%,7)=150,000*4.86841=730261.5
B/C ratio=2,719,221.63/(730,261.5+2,000,000)=2,719,221.6/2,730.261.5=0.99595
B/C Ratio=0.996
Profitability Index=Net Present Worth/Initial Investment
NPW=PW of Benefits-PW of Costs=2,719,221.63-2,730,261.5=-11,039.87
PI= NPW + Initial Investment/Initial Investment=(2,000,000-11,039.87)/2,000,000=0.9949
Find the benefit-cost ratio and profitability index for group’s company startup at an interest rate of...
A snow removal company wants to determine their benefit-cost ratio for the last 20 years. During this time, the company purchased snow removal equipment for $800,000, and spent $60,000 for annual maintenance costs. Additionally, $175,000 revenue was generated each year. if the interest rate is 10%, determine the benefit to cost ratio USING EQUIVALENT UNIFORM ANNUAL ANALYSIS. Select the closest amswer. (10 pts) A snow removal company is trying to evaluate their benefit to cost ratio for the last 20...
See the following financial information (Income Statement and balance Sheet) for Thornton Company for the years ending December 31, 1998 and 1999. What is the Net Plant & Equipment in 1998 and 1999? Calculate the Cash balance in 1998 and 1999? What is firm’s Net Income in 1998 and 1999? What is the Quick ratio in 1998 and 1999? What is the ROE in 1998 and 1999? What is the EPS (Earnings Per Share) in 1998 and 1999? 1998 1999...
Compute net present value, profitability C index, and internal rate of return. P12.3A (LO 2, 3, 4), AN Service Brooks Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its main- tenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to...
Part 2: Cost Benefit Analysis Assumptions In order to simplify the cost benefit analysis, we will not make a net present value calculation for each cost and income. Please report all calculations in yearly terms Please calculate the cost benefit over a 5 year term Instructions Please create a table that lays out the project cost and benefits (15) Please create a table that shows the cost over 5 years (5) Please create a table that shows the benefit over...
Ch. Benefit / Cost Analysis Problem 1: ICON Co. will perform a project that will have a first cost of $1 million with an annual maintenance cost of $50,000 and a 10 year life. This project is expected to benefit the company with $250,000 per year. But also the lost income to the company is estimated to be $30,000 per year. At an interest rate of 6% per year, should the project be undertaken? Problem2:ICON Co. is planning to make...
Goldberg Co. uses activity-based costing for all of its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity based costing system: Overhead costs: Wages & Salaries $806,000 Factory Supplies 488,000 Total $1,294,000 Distribution of resource consumption: Activity Cost Pools Clean-Up Inspection Other Total Wages and salaries 22% 60% 18% 100% Factory Supplies 48% 20% 32% 100% The amount of activity for the year is as follows: Activity Cost Pool Activity Clean-Up 1,000...
Cost benefit analysis for the Long Engineering Company The Long Engineering Company (LEC) has decided to install a network system to help their technical support engineers (five of them who earn an average of $100,000 each per year) to deliver better customer service including: mail out sales and other literature, answer phone calls for technical assistance and log and forward repair requests using an alpha-numeric paging system that will be part of the new network system. Currently all company...
Poldberg Co. uses activity-based costing for all of its overhead costs. The company has provided the following data concerning its annual overhead costs and its activity based costing system: Overhead costs: Wages & Salaries Factory Supplies Total $806,000 488,000 $1,294,000 Distribution of resource consumption: Clean-Up Other Total Activity Cost Pools Wages and salaries Factory Supplies Inspection 60% 22% 18% 100% 48% 20% 32% 100% The amount of activity for the year is as follows: Activity Cost Pool Clean-Up Inspection Activity...
The two ME alternatives shown are under consideration for facility improvements in a company in Abu Dhabi. Determine which one should be selected based on a B/C analysis. Assume an interest rate of 10% per year and a 5-year study period. Alternative X Alternative Y First costs, AED 40,000 90,000 Annual M&O costs, AED per year 50,000 20,000 Benefits, AED per year 120,000 150,000 Disbenefits, AED per year 30,000 10,000 Match the closest correct answers for the below questions: - ...
Profitability index = NPV Investment cost To illustrate the use of this measure, let us assume that Midwest Region Hospital is considering an investment in linen service shared with hospitals in the region. The initial investment cost is $150,000 for the purchase of new equipment and light delivery trucks. Savings in operating costs are estimated to be $50,000 per year for the entire 5-year life of the project. If the discount rate is assumed to be 10%, the following calculations...